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"Risks for NZD/USD remain firmly skewed to the downside with China and commodity prices clearly warning of further weakness. However, in the short term sentiment is already weak and technical indicators are oversold." - ANZ.

The week ahead for the New Zealand Dollar includes the important quarterly Business Opinion Survey on Tuesday morning, which is expected to show a rise in sentiment reflecting the improved tone of the month to month economic surveys.

Later on Tuesday CPI will also be released, and according to TD Securities:

“The food and fuel components are expected to drag down headline inflation,” which may be a factor in prompting “the RBNZ into voicing a dovish tone at their January 28th policy meeting.”

However, let us not overlook Monday’s Weekly Dairy Auction, which saw and average winning price of $2,458 in the previous week and $2,210 for whole milk powder.

The dairy sector is incredibly important to New Zealand’s terms of trade and therefore we will be looking for an improvement here.

Analysts at BNZ warn that disappointment could be the order of the day as dairy prices look prone for another fall in price, given the worsened global commodity context since last auction, back on 6 January, and for the fact that whole-milk powder price futures on the NZX have dribbled off a fraction further.

National Bank of Australia think this could be an important metric from the point of view of gauging the impact of the global slowdown:

“Can it keep an arm’s length from the global malaise in the industry? It did in November, with an index reading of 54.7.”Chart Analysis

NZD/USD Forecast – Respite from the Selling?

"Risks for NZD/USD remain firmly skewed to the downside with China and commodity prices clearly warning of further weakness. However, in the short term sentiment is already weak and technical indicators are oversold," says SAm Tuck, ANZ's senior FX strategist.

ANZ prefer to sell rallies than position for further immediate declines.

The New Zealand to US dollar exchange rate has completed an A-B-C correction in the midst of a strong down-trend, and has recently broken lower, resuming its longer-term down-trend.

The downside break has reached its minimum price target at the 61.8% projection of the move prior to the trend-line break.

RSI is oversold indicating that there is a lessening probability of further down-side extending lower from here.

Nevertheless, a move below 0.6350 would probably be confirmation of a very strong move lower, which would be expected to reach the 100% target at 0.6300.

Inflation expectations are important for currency markets because the RBNZ can only be expected to raise interest rates after inflation has made a sustainable return into the higher end of the 1% to 3% target band.

“We don’t foresee an OCR hike until late-2019. If anything, we would put the odds of an OCR reduction this year as slightly higher than the odds of a hike, although a large shock would be required to generate either,” - Westpac.

Fourth-quarter unemployment data comes ahead of the latest interest rate statement from the Reserve Bank of New Zealand, which could yield a hawkish change in the central bank's language, according to one strategist.